Which Method of Preparing the Operating Activities Section of a Statement

question 76

Multiple Choice

Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

• A) The direct method
• B) The indirect method
• C) Both the direct and indirect methods
• D) Neither the direct method nor the indirect method

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Definitions:

Stock Split

A corporate action that increases the number of a corporation's outstanding shares by dividing each share, which in turn diminishes its price.

American Call Option

A financial derivative allowing the buyer the right, but not the obligation, to buy a specific stock or asset at a predetermined price within a certain time period.

Underlying Asset

The security or asset on which a derivative contract is based, influencing its value and characteristics.

Exercise Price

The predetermined price at which an option's underlying asset can be bought or sold.